The MySuper debate has become too narrowly focused on costs and superannuation funds need to better articulate the benefits of the diversified investment strategies that underlie most default options, according to Paul Costello.
Costello, the former chair of the Stronger Super Peak Consultative Group, signalled that the emphasis on costs could lead to situations where members found themselves in inappropriate products.
"For the interest of three-quarters of the population who probably will find themselves in a MySuper product, I really do hope we can move beyond this stage and find something more appropriate and much more sustainable," he said at the Australian Hedge Fund Forum 2012 in Sydney yesterday.
He argued it was up to the industry, especially the not-for-profit sector, to better communicate the reasons behind their product design.
"I hope we will start to see from the industry fund sector a new voice, which is a confident voice, that says: 'You can offer products at a very low cost, but there is a price and it is a price that we are not willing to pay, and, therefore, we believe it is in the best interest of the people whose money we manage to offer a more thoughtfully constructed and more diversified program, and to pay what we need to pay to produce that.'"
He argued the not-for-profit sector could no longer rely on its traditional argument of offering low-cost products, as the retail sector had actively developed a number of low-cost and, with the introduction of ING Direct's superannuation product recently, zero-cost investment options.
But he said that should not lead to a situation where not-for-profit funds started to chip away at their default options and end up with neither a cost-competitive nor a well-constructed diversified product.
"We seem to have an industry at the moment that is completely fixated on driving down the cost and there is plenty of anecdotal evidence that the casualty of this is any kind of strategy that incurs higher costs," he said.
"I think that is a tragedy and it is not a fault of the legislation."
He said he hoped super funds would not turn their back on hedge funds as a result of the focus on costs.
"I've spent a lot of time in my discussions with the regulators trying to shift that conversation away from cost and towards value; that value is a combination of risk and return. I think we were successful," he said.
"A mistake that is often made is to assume that this discussion under the heading of MySuper is all about driving down the cost of providing superannuation services.
"It is not. In fact, cost in the legislation is mentioned only once."
